Why Insurance Liability Limits Matter

In Ontario, consumers who purchase standard home or auto insurance policies will likely also have access to third party liability coverage as well. Few people stop to think about what that coverage means when liability coverage is in fact one of the biggest reasons to purchase insurance.

Liability coverage typically means that your insurance company will fund the defence of a lawsuit against you and possibly even pay the settlement if their lawyers assess that you might actually be liable.

Why would anyone ever sue you? Like it or not, lawsuits happen more often than you might think. One possible scenario is that you get into a car accident and the other driver gets sent to the hospital with a broken arm. Another possible scenario is that someone comes to visit your home but trips on your interlocking pavement and fractures their skull.

If you're that unfortunate homeowner, you could be facing a big lawsuit. By having a liability coverage with your home insurance, your insurer would generally handle the claim after it is reported. Even if the claim is entirely frivolous, your insurer should handle it for you. Their tasks include conducting investigations, hiring an "insurance defence" lawyer, paying the lawyer and choosing experts to defend you.

All these things are not cheap. A two week trial can easily cost $100,000. And you can still lose and have to pay both your lawyers and the judgment.

Note that your insurer is only responsible to cover you up to your liability coverage limit. If a lawsuit has a realistic chance of breaching your coverage limit, you may wish to hire private counsel to ensure that keep an eye on your insurance lawyer and to negotiate on your behalf.

It would be even more unfortunate if you're that homeowner and you do not have liability insurance. You could be facing a lawsuit and be left having to fund your own legal defence and face the possibility of losing your home if a court deems you to be liable.

Whether you purchase liability insurance and the amount of coverage you opt for is your choice. It's a choice that you really ought to put some thought into.